Morning, everyone, and thank you for joining us. It gives me great pleasure to host this fireside chat with Ida Lerner, CFO of ING Groep. Ida, thank you very much for joining us in New York.
Thank you for having me.
I think we'll just get straight into it, straight into the questions. The first thing I wanted to touch upon was the 2026 and 2027 targets. ING recently upgraded the ROE targets in 2026 and 2027 to above 15% and 16% respectively. Do you believe you're on track to achieving these targets given the current macro environment?
Yes, absolutely. Indeed, we updated the target and the outlook in line with our second quarter results, and it's really driven by the development that we're seeing in the business year to date. We continue to see strong business momentum across the segment, across the geographies where we operate, but also across the different product areas where you see continued strong profitable loan growth, continued strong deposit growth, and we also see a very strong growth in fee income. All of that in combination with the very strong efficiency that we're seeing also across the board will give us good comfort that we will be able to deliver on the renewed outlook, which is an improved outlook as well.
That is great. We know that your targets are out to 2027, and 2027 is approaching pretty quickly. So when do you think would be an appropriate time to update the market beyond 2027?
Well, the targets for 2027 were set at the Capital Markets Day in 2024. As you can see from the numbers, we are well on our way to deliver on those targets and also above those targets in some areas. If you look at retail banking, we see a very strong progress in all the different segments and an uptick that is stronger than what we anticipated moving out of the Capital Markets Day.
On wholesale banking, I would also point to the strong deliveries that we are seeing, not the least in terms of capital velocity and the continued strong loan growth, but with a very modest growth in Risk-Weighted Assets over the past few years. So I think we can just say that we are well on our way to deliver on the targets set there or above those targets. Then I promise you to update you once we decide on renewing those targets. We will keep you updated.
Okay, perfect. But 2027 is indeed approaching quickly.
It is.
That's great. It wouldn't be a fireside chat without liability margins and rate sensitivity. How do you think about rate sensitivity in light of the current yield curve, and how do you think about the replicating portfolio, and do you still stand by the liability margin only temporarily being above 100 to 110 basis points in 2027 and 2028?
Yes. Well, what we're saying is that when we look at the liability margin today, we've indicated historically that we believe that we will be between 100 and 110 basis points. In the second quarter, we said that we would most likely for 2026 be slightly higher, in the higher end of that or higher-mid end of that range. Then beyond in 2027, 2028, we're also seeing, due to the strong deliveries that we still see in terms of tailwind on the replication portfolio, the continued strong development we see in volume growth on deposits, as well in terms of our ability to continue growing mobile primary customers, which should also support current account growth. We've said that we expect to be above that range, in 2027, 2028. Also, of course, given the macroeconomic development around us and not least interest rates.
But we see a good kind of tailwind still related to the replication. If you look at both the long end of those replication portfolio and the shorter end, both are actually now benefiting from higher interest rates, and therefore, we continue to see a good momentum there. Then the question is also, which you rightly challenge us on, is where would you expect the liability margin to end up, and why are you only saying that it will be there temporarily for a number of years and then trending back? Then you really need to look at the composition of our portfolio. Then in terms of the deposit portfolio, where the absolute majority sits in savings accounts, which has historically shown a trend to be competed down to more normalized levels.
What are normalized levels given any interest rate levels going forward? We expect in terms of what we are seeing today and also the structural shifts that we are seeing impacting deposits overall, the continued strong competition that we see across the markets where we operate. We then say that from where we sit today and what we are seeing, we expect it to potentially come down to 100 and 110 basis points, which has been the more normalized levels. Also, of course, depending on our ability to continue growing current accounts. That is really an area that we also need to continue focusing on.
That is perfect. Just following up on that, you mentioned the ambition to grow current accounts. What is the strategy there and how are you thinking about it?
In retail, and especially on the PI side, personal customer side, we have a clear strategy of growing mobile primary customers. The reason for that is that we want to broaden the customer relationship and focus less on product-specific growth, more in terms of customer value proposition growth. You can already see that in terms of the percentage-wise number of customers that are moving to become primary customers. We are seeing very good growth there. In addition to that, we are seeing a continued positive growth on mobile primary customers, which is, of course, the sweet spot for us. For us, it is really about making the customer self-service to a larger degree. That is also where I would argue ING has a unique selling proposition to our customers, that they are able to be self-serviced.
That is also how we meet our customers, both digitally but also when they contact us. It is all to guide the customers to solve their own issues that they potentially have, but also in terms of becoming more self-serviced overall and own their own responsibility and become the CFO of their own personal economy. That is why we believe it is important to continue growing that. You can also see it in the number of, or the volumes in terms of current accounts, where we are also seeing in order to become a mobile primary customer, you need to have one type of payments account where you have recurring income coming into. That is also how we expect to see continued growth in the current side.
I think if you look at ING historically, which was more on the PI side, perhaps a bit more product specific in savings and in mortgages, now we're changing that to more overall holistic customer proposition. That's also why we launched the subscriptions, where we're seeing a very good and positive momentum, and also from the customer's feedback perspective to seeing that as a positive to also grow beyond liabilities and lending into other products as well.
That's very clear, and the strategy seems very clear and succinct. I just wanted to touch a little bit on deposit competition, and two countries in particular. Firstly, Germany where there are a lot of attractive offers including the likes of Chase. How do you think ING's proposition stacks up there versus peers? What's ING's strategy to grow its deposit franchise in Germany?
The German market is a very big market, and is a big market in terms of overall for banks. But also more importantly, when looking at deposits. It's a small part of the market that is more flexible in terms of moving in between banks. Most customers continue to be loyal and continue to be more sticky than what people perceive. There is strong competition in all markets where we operate. That's why we need to continue to be best in class in terms of customer offerings to also show that we have a customer value proposition that is far better than everyone else's. When looking at Chase, it's a new entrant into the German market, similar to what we've seen historically with other banks moving in with quite aggressive price offerings in the German market.
We see quite an aggressive competition also in Spain, where we continue to see Revolut and the neobanks being quite actively promoting really good interest rates. On the other hand, we also see that our customers continue to be loyal and continue to show that they like what ING is offering. You can also see that in the second quarter, where we continue to see a very strong deposit and strong profitable deposit growth in the German market, but also in other markets, in spite of Chase coming into the market. For us, we continue to focus on profitability, and we continue to focusing on customer value proposition. I believe that we have an offering and a position in the German market that gives us great potential to continue growing that franchise, continue growing it both on mortgages but also on deposits.
But more broadly than that, also when looking at what's happening in terms of the pension reform coming into play 1st of January. That's definitely an area that we also expect and plan to be very successful going forward.
That sounds good. The other country I wanted to touch upon in terms of deposit competition was the Netherlands. So we saw rather in early August increased deposit rates on savings accounts. I wanted to explore whether ING has seen any impact from there and what the strategy would be in the Netherlands.
Well, the market in the Netherlands is a bit different compared to Germany in the sense that it's not as. We don't see prominence of promotional campaigns to the same degree that we've seen elsewhere. It is a competitive market. It's an active market. But in the Netherlands, we have a very strong position. We also have a strong client base that continue to use us. And you can also see that in our numbers, that we're seeing a good continued uptake in deposit and cross-sale in the Netherlands. I expect it to continue to be competition, and I also expect new pricing points.
But for us, it's really about not being a price pusher in that sense, but focusing on long-term profitability, long-term customer value proposition, and really. That's how we believe that we will continue to grow the franchise and continue to grow in terms of value to both our shareholders, but also to our customers.
That makes sense. Then just again on the deposit side and deposit campaigns, which is something the group is active in. I found it interesting in terms of 95% of retail savings are actually priced at the core rate rather than a deposit campaign. Do deposit campaigns really move the needle and what is behind them?
For us, as you can see in the past year, we have, I wouldn't say changed strategy, but we have become even better in using the campaigns to also show that we are giving personalized advice without being personal advice. We are using customer data and customer insight to a larger degree by doing the more under the line or below-the-line campaigns rather than full-fledged campaigns. That is also a way for us to continue to attract deposits that our customer has with other banks. It is at a lower cost, both in terms of marketing costs, but also in terms of deposit costs. It also brings customer value, and the customers also see and feel that we see them as who they are and are more targeted in our advice towards the customers.
Campaigns will continue to be an important feature for us, and will also continue to be a part of the market where that is a prominent feature overall. I also think if you look at the last two and a half years, our net deposit has grown by EUR 100 billion. That shows that we have a strong franchise and it is really showing in terms of profitability, I would argue, going forward. Short answer to your question, yes, promotional campaigns will continue to be an important feature. We could do larger campaigns, but I actually see a strong benefit in continuing using the customer data, using our digital footprint and digital DNA to show our customers that we see them for who they are and really bring added value beyond just price.
Sure. Then just switching to the lending side and the lending margin, it ticked down a little bit in Q2 versus Q1. Just big picture, are you seeing lending margin pressure anywhere in particular by geography or by product?
When looking at the lending margin, you also need to look at the composition of the portfolio. There we're seeing a stronger growth in the lower risk segment, both when you look at we're growing in percentage-wise on mortgages to a larger degree, and we're also on wholesale banking growing in low risk, which also means that we need to look at in terms of profitability, of course, but we never lose sight of profitability and at the lending margin trending now down to 124, where we expect it to continue to remain. That's not a reflection of increased competition or that is an irrational market anywhere where we operate. Rather the opposite, that we continue focusing on profitability and also Risk-Weighted Assets and overall risk grades.
That makes sense. I know so far you've touched upon volumes and volume growth, but the volume growth at ING, both on the lending and deposit side, has been exceptional and higher than the 5% medium to long-term target that ING aspires for. Do you think this elevated level is something that's sustainable, or how do you think about this?
Yes, we have seen a strong growth. If you look at it over the past years or since the Capital Markets Day, we've had a compound average growth rate of 7% on loans and 6% on deposits. That is above the 5% that we have indicated. For us, again, we would like to continue growing where it generates profitability and where we also see that it's long-term driving the customer value proposition. Then longer term, we have maintained our outlook of having a balanced growth between lending and deposits of around 5%. It will of course also depend on the macro, and the underlying growth in the markets where we operate. Again, profitability and a long-term trajectory around 5% is where we believe that we could also continue to add value in terms of shareholder value going forward.
If we continue to see that we, with a higher efficiency, increased time to yes, which is an important feature here as well, if we are able to grow more than the market or grow more than 5%, then we would happily do so if it brings profitability.
That makes sense. Just moving a bit along in terms of capital allocation and focusing on the wholesale bank a little bit. At the last Capital Markets Day in 2024, ING spoke about 55% of RWAs in retail, 45% in wholesale banking. In the second quarter, that has already been surpassed. How do you think about the allocation of capital now? Are you on track to improve the profitability in the wholesale bank?
To the latter question, yes. Absolutely. In the sense that you look at, as I mentioned initially, you continue to see a strong loan growth in the wholesale banking side, but at capped Risk-Weighted Assets almost. That is also due to the fact we are now doing SRTs to a larger degree than what we have done before. Started in November last year, did another SRT in the second quarter, and expect to continue doing SRTs to optimize the capital position.
That also means that we need to not only optimize the capital position in wholesale banking, but to a larger degree, turn that capital around and really work with originate and distribute and further cross-sale beyond lending, which is an untapped potential in wholesale banking, which Ljiljana, our new Head of Wholesale Banking, is really focusing on and is developing in terms of continued skill set among our corporate bankers on the wholesale banking side. I see very promising development in terms of number of payments and cash management mandates being one. That should also continue to grow deposits on wholesale banking. In addition to continuing using SRTs as the way of optimizing the capital position and originate and distribute.
Then we will continue to prioritize growth on the retail side, and particularly if you look at mortgage lending, which is continuing to be profitable in most of the market where we operate, but also bringing added value in terms of deposits, further cross-sale potential in other fee-related areas where we have seen a good growth historically.
That's perfect. Just thinking about capital allocation in another way. In terms of M&A, I know that's another debate topic for ING. Steven, earlier at a conference this month, spoke about M&A and especially related to Germany and on the insurance and investment side. What makes ING attracted to this subcategory? Can you just in general remind us of the attributes of a specific M&A target which would be likable for ING?
First, I would say ING has a unique position to grow organically. We have 41 million retail customers, of which only 16 million are mobile primary customer. The potential to cross-sell even further with that customer base organically in the markets where we operate today and through continuing to drive fee income, I would say is unprecedented in terms of looking at our peers. That is one area, and what we've said in terms of M&A is that we would look at areas to make acquisitions where it would either add to our organic growth story or where we are adding capabilities and product capabilities or competence in, say, private banking and wealth management, where we have a weaker proposition today or footprint than otherwise.
I think it's just so important for me to reiterate, we have an enormous potential on the organic growth side, and it's important for us not to derail focus from that and investments into that by looking at broadening M&A. M&A requires quite a bit of management attention to make it successful, and that's why we have very high hurdles of what we are doing and what we're looking at as well, and will continue to do so. If you look at, more importantly, where we have done acquisitions lately, if you look at Singular Bank, for instance, which was the latest one. Which was a stake in a company that we strongly believe in a market being Spain, where we don't have a footprint or a position on the private banking side or on the asset management side.
We want to continue grow organically by increasing or establishing ourselves on the private banking side in Spain. At the same time, through the position that we now have and the stake that we have in Singular Bank, it gives us a unique proposition or capability to also learn and give gain part of a market that we would have quite difficulties, I would argue, growing organically. It's also an ability for us, a proposition for us to move from the stake that we have today to full ownership. There we also need to ensure when you acquire a company that is not only a portfolio, but you're actually acquiring people and competence. We want to do it together in partnership with the management. The management is very positive in terms of the stake that we've taken now.
It's clear that this is a partnership and with the potential to increase that ownership to 100% further down the line. But again, we want to ensure that both the customers want to be part of this journey and also management want to be part of this journey. And there, I think Singular Bank is a really good example of how we would like to do that and approach it going forward.
Indeed. That brings me very well onto the next question, which is about the stakes ING has. We saw in August ING reduced its stake in TMBThanachart Bank once again. Just firstly, what's the rationale for this, and how do you think about the other stakes you have, such as Van Lanschot Kempen and Bank of Beijing?
I would split Bank of Beijing and TMBThanachart Bank in one bucket and Van Lanschot Kempen and Singular Bank in another bucket. In the sense that Bank of Beijing and TMBThanachart Bank were acquisitions that we did a number of years ago, where we had a completely different international scope, a different strategy. There you now also see that we are taking actions to reduce those stakes in order to also reallocate capital and reallocate in order to free up capital, but also in investments to other things, or in terms of bringing shareholder value long term.
That's why you're now seeing in June, we reduced our stake in TMBThanachart Bank, continued to do so in August, and this is a part of a longer term strategy of reducing those areas where we're not having a strategic stake and where we also see potential to do it profitably in a way that also support shareholder value long term. When looking at VLK and Singular Bank, I've already talked about Singular Bank, but VLK is an interesting investment for us. I would also say if you look at the numbers, it's adding to our shareholder value proposition, and it also brings added value to ING in the sense that this is a different type of private banking setup than what we have in-house. And it's in a way, it creates internal competition, but it also shows us that it brings added value long term to shareholders.
That makes sense. Does anyone in the audience have any questions? I will keep asking them then. Just switching gears a bit and looking at ING's FTEs. Earlier this year, ING announced a reduction in 1,250 operational roles, and just in the last quarter, we have seen group FTEs decline a bit quarter-over-quarter. Firstly, how is the reduction in the 1,250 roles going, and how do you see FTEs progressing?
Well, the 1,250 FTEs are well underway. For us, it is important to do this in a structured way and also in a responsible way towards our employees, and ensure that everyone also understands what is that we are doing and why are we doing it. It is linked to increased efficiency in our processes, continued straight through processes, continued focus on using digital and automated processes internally.
Of course, AI is a very clear indication here, or it is a clear example of how the use cases that we are putting in production are actually showing also in terms of our numbers. Here, we are seeing that using AI, and particularly on KYC and in the onboarding process, and it related to AML process overall, has continued potential, but this is a clear indication of how we are using it and how it is also standardizing our processes globally for ING. That is why scale is so important for us and really shows how we can use a scalable mindset in our way of working across the board, using our hubs to a larger degree than what we have done before, and really streamline those processes.
I think that there is more to do by using AI, going forward to also achieve efficiencies, but also in further automation and further standardization across the group, where we come from a situation where ING Direct had quite local set up in different geographies. We are now moving it more in terms of how can we think of global platforms in the sense that how we operate, not necessarily talking about the tech stack, but more in terms in how we operate and how we meet our customers and how we handle the more operational tasks where there is more potential also going forward. I think you had a question.
Just in terms of capital requirements. [inaudible]
I will repeat the question perhaps if people in the audience did not hear it. Are we seeing a trend or a tendency from the regulators to loosen up in terms of capital requirements in Europe, similar to what we have seen in the U.S., and more importantly, in terms of the Dutch regulations? We are ECB regulated, so for us, the regulation coming through ECB is the main driver for us, and then, of course, you have the local supervision from DNB in the Netherlands that is added to that. Overall, I would say we are seeing trends of simplification from Europe as a response also to what we are seeing in the U.S.
On the other hand, I would say that I believe that the communication from ECB has been quite clear that we are not talking about easing capital requirements necessarily, but we are talking about simplification, standardization, the processes, how they, in terms of reporting requirements from banks, in terms of also simplifying the, what we call the SREP process, which is now significantly simplified in the sense that it is less pages, less focused on terms of the micro level and more the macro level. These are very important steps for us.
It reduces the burden internally, and it also makes us more risk-based, which I think is the most important thing for banks overall, that we continue operating in a risk-based approach. We see more standardization between the local regulators, not only in terms of the Dutch regulator and ECB, but as we operate across the board in lots of different jurisdictions, I think simplification, standardization, and a more harmonized regulatory environment is important for us, and that is why we are also advocating that quite strongly in our dialogue with ECB, but also with local regulators. I do not expect to see capital easening in Europe in a broad-based perspective.
That is why we need to continue working with capital optimization tools. How do we think about using our capital in a smarter way? How can we also think more smarter in terms of where we operate and how we allocate capital? That is going to continue to be the feature for us. Level playing field is the most important thing. Rather than thinking about how can we optimize in a micro level, it is more the level playing field, both in terms of the U.S. banks operating in Europe, but also across the European countries to see more harmonization, less local deviations compared to the overall European standards, and that is where we also put the most focus from our perspective.
Thank you. Does anyone else have any other questions? Sure.
[inaudible]
I think there is significant opportunity. If I take AI, we have not talked about that, but I look at AI in three different dimensions at least. First of all, I would say we use AI to ensure that our staff, our 60,000 employees, continue to be highly relevant and highly skilled in terms of using AI to a larger degree across the board. The second part is where can we make the more manual processes more efficient and less time-consuming, but also in terms of reducing the number of employees. That is where we see a good development on AML. I would say AML-related tasks. We are already now seeing a significant reduction in number of people working with AML-related or KYC-related tasks driven by AI.
There, there is a significant potential, I would argue, also going forward, when you continue looking at the end-to-end processes rather than just adding AI to an existing manual human-built process. If you manage to really redesign the process end to end, and that goes beyond AML, that is where you will see the largest potential, but also the quality enhancer in terms of using AI to a larger degree. Then the third element is where you see increased productivity or increased potential in terms of income generation. There, if you look at the agentic mortgage, where we use generative AI in terms of agentic mortgages in the Netherlands, where we are seeing a massive improvement in terms of time to yes. Not necessarily that it is reducing costs from our perspective, but it is enhancing the quality of the process and it is reducing time to yes.
In a market where we are digital first, where the market overall and our customers are highly digital and our competitors are highly digital, time to yes just becomes even more important. That's where we see a great potential also to look beyond cost efficiencies and then looking at where can we also add more income potential and also make us even more competitive going forward. Short answer to your question, yes, there is more potential using AI in some of the manual backend operational tasks that we're still doing, but not only in terms of reducing, I'm not targeting reducing full-time employees. I'm targeting how can we use AI in a way that it frees up time for our employees to focus on customer value adding services more than anything else.
Thank you. We have time for one final question. I wanted to touch on Belgium, because it's a little bit softer in terms of profitability than other countries ING operates in. I really wanted to ask, where do you think returns can go, and what's being done to improve profitability?
At the Capital Markets Day in 2024, we said that we had a target of improving the return on equity to 14%. We're well on our way to deliver on that. I think, yes, you could look at it by saying that Belgium is not performing in line with some of our other countries, and it's true. But if you look at the shift and the changes that have been made locally in terms of focusing more on cost efficiency, reducing the number of branches, really focusing on counteracting changes in terms of that has meant that the cost level has remained flat in an environment where inflation pressure, inflationary pressure, and indexations would have meant that costs would have increased significantly more. I would say that the management team and the ExCo in Belgium has done a fantastic job.
Also when looking at how they're balancing the growth in deposits as well as on mortgages, where we've seen a slower growth in mortgages, but at the same time really building the fee base. If you see the growth on fee income in Belgium and linking it to the investment proposition that we have there, I would say that there is more to come. There is more potential to come in the Belgium market. But I actually think it's a bit unfair to say that it's not delivering in line with our expectations, because if you look at what they have achieved year to date, and also the trajectory that they're on to in terms of delivering on the target at 14% of return on equity, I think that's a tremendous work that is being done. It's all about the customer proposition also there.
There is more growth potential on business banking, where we can do even more moving into deposit growth and fee-based growth in terms of payments, where we haven't been as focused historically, but there is more potential going forward.
Great. Well, we've come to the end of our fireside chat, and thank you very much for joining us, Ida. It was a pleasure.